Sole trader v Limited Company

astrologer50

I am hoping to start up a 'buy to let' property investment/management company and am not sure of the pro's and cons of sole trader v limited company.

Any advices pls?

anselld

astrologer50 wrote: »

I am hoping to start up a 'buy to let' property investment/management company and am not sure of the pro's and cons of sole trader v limited company.

Any advices pls?

This is not a business forum and in any case you have not given sufficient detail of your business plan for anyone to offer much useful advice.

Classic BTL, ie buying your own property to rent, is not a trade. It is an investment. Hence you could not be a self employed sole trader.

Management for other investors, ie agency, would allow you to be self employed.

The benefits or otherwise of incorporation would depend what you are planning to do long term.

astrologer50

anselld wrote: »

This is not a business forum and in any case you have not given sufficient detail of your business plan for anyone to offer much useful advice.

Classic BTL, ie buying your own property to rent, is not a trade. It is an investment. Hence you could not be a self employed sole trader.

Management for other investors, ie agency, would allow you to be self employed.

The benefits or otherwise of incorporation would depend what you are planning to do long term.

It is my intention to buy multiple properties around £1m in the near future, to manage, market and let these properties. I have no wish to *management for other investors* but solely market and let my own properties.

deFoix

Sorry but if you've got so much cash to invest why don't you seek advice from a professional?

anselld

astrologer50 wrote: »

It is my intention to buy multiple properties around £1m in the near future, to manage, market and let these properties. I have no wish to *management for other investors* but solely market and let my own properties.

In that case you cannot be a self employed (sole trader) because investment is not trade or employment. You can either be an individual investor or you can set up a limited company.

There are some benefits of buying through a Limited Company if you intend to re-invest income long term. If you want to extract income in order to pay yourself then the advantages are marginal at best.

If you require mortgage finance then you may find it more expensive/difficult through a Limited Company.

You are right to think about it before proceeding though because trying to move property into a Limited Company after purchase could be very expensive.

If you are serious then get some professional advice.

e13

You can get mortgage interest relief as a limited company, whereas that's being withdrawn for non-company landlords.

Don't know much about the interest rates on commercial vs non commercial mortgages if you need one.

It'll also depend on the amount of money you intend to take out the business - there are ways of paying yourself tax efficiently through limited companies but I think you'd need to google this further/look on a more business oriented forum/ask a professional.

There's also the potential for inheritance tax benefits if bought through a company, but this depends on whether the property is defined as an investment property or not.

You'd have to file accounts as a limited company, and depending on the revenue and assets of the company you might be required to have a statutory audit (expensive!).

Essentially, you need to look at: the amount you're going to invest, the revenue you expect the company to have going through it, the income you wish to draw from your investments, whether or not you'll need finance, whether or not you intend to furnish the houses, the potential CGT implications if you intend to sell them later (businesses usually get indexation which means the effect of inflation is cancelled out in their CGT gain), how the buildings would be categorised for IHT purposes.

You need a lot of numbers before you can work out whether you'd be better treating it as rental income as part of your personal income or as a company. It'll also depend on if you have other sources of income, what you want to put into a pension etc.

anselld

e13 wrote: »

You can get mortgage interest relief as a limited company, whereas that's being withdrawn for non-company landlords.

Not quite correct.

Mortgage relief is not being withdrawn, it is being limited to 20%.

Whereas in a Limited Company it would be allowable currently at 20% against CT ( reducing to 17% by 2020).

e13

anselld wrote: »

Not quite correct.

Mortgage relief is not being withdrawn, it is being limited to 20%.

Whereas in a Limited Company it would be allowable currently at 20% against CT ( reducing to 17% by 2020).

Ah, my mistake - thank you for explaining.

astrologer50

thanks everyone, I'm pretty sure it will be limited company. I am not looking for finance and will be paying cash. Am hoping to put profits into pension scheme to.

Just not sure how I would get the cash investment back from the company after buying these flats. Would it be a Directors loan or something else perhaps?

Vectis

astrologer50 wrote: »

thanks everyone, I'm pretty sure it will be limited company. I am not looking for finance and will be paying cash. Am hoping to put profits into pension scheme to.

Just not sure how I would get the cash investment back from the company after buying these flats. Would it be a Directors loan or something else perhaps?

As already pointed out, if you have so much cash that you can buy 'several' million pound properties to rent out then why are you trying to save a few quid by asking these questions on a public forum. Speak to a solicitor and/or an accountant i.e. pay for some professional advice, you can obviously afford it.

anselld

astrologer50 wrote: »

thanks everyone, I'm pretty sure it will be limited company. I am not looking for finance and will be paying cash. Am hoping to put profits into pension scheme to.

Just not sure how I would get the cash investment back from the company after buying these flats. Would it be a Directors loan or something else perhaps?

Limited company is the way to go if you want earnings to be pensionable since investment income (rent) earned by an individual is not pensionable.

Basically when your Ltd Co buys say a 100k flat and you pay the money you have created a Directors Loan of £100k, i.e. owed to you by the Company. The Company can repay you gradually over time out of profits or proceeds of sale etc. Repayment of the loan is return of capital so no tax involved (unless you charge interest).